Getting Prospects to Make Faster Decisions

Wednesday, April 25th, 2012

One of the biggest frus­tra­tions for advi­sors is the amount of dither­ing that prospects do — some­times it feels like it takes for­ever for peo­ple to make a decision.

Or you’ll have a really good meet­ing with a prospect, you agree to send them some infor­ma­tion as a follow-up and then prospects won’t return your calls.

There are a num­ber of rea­sons for this. Peo­ple are busy. Often they’re gen­uinely unsure whether life with you is going to be bet­ter than where they are now. Iner­tia is a pow­er­ful force — for some investors, it’s just eas­ier to stay where they are.

And often the harder that you try to accel­er­ate the process, the more prospec­tive clients get their backs up.

As a result, you need to have three strate­gies in place

1.     Min­i­mize pressure:

The chal­lenge when talk­ing to a prospec­tive client is to com­mu­ni­cate that you’d like to work with them but that you don’t need to work with them — you need to allow the con­ver­sa­tion to evolve at a com­fort­able pace. The moment you con­vey anx­i­ety or even a trace amount of des­per­a­tion for the busi­ness, your chances go way down.

One way to do that is to have lots of prospects in the hop­per. If you have five prospects, inevitably you’ll feel pres­sure when talk­ing to one of those five.

If you have fifty five prospects, much less so.

2.     Cre­ate momentum

Recently I fea­tured an arti­cle by a US advi­sor coach out­lin­ing a four meet­ing process to con­vert prospects to clients.

Whether your process when meet­ing with prospects is two, three or four meet­ings, you need to try to close each meet­ing by set­ting up the next one, ide­ally in the next cou­ple of weeks. You need to try to build an appro­pri­ate level of momen­tum into prospect meet­ings, with­out cre­at­ing pressure

So if a prospect asks you to send infor­ma­tion, if it’s a sig­nif­i­cant prospect, I’d try to set up a time to briefly review that mate­r­ial face to face. The prob­lem is that mail­ing or email­ing infor­ma­tion after a meet­ing typ­i­cally doesn’t add to momen­tum, in fact it often reduces it.

Instead of email­ing infor­ma­tion, I ‘d say some­thing like: “I’ve found that the best way to cover this kind of mate­r­ial is in per­son. I won­der if we could set up 20 to 30 min­utes the week after next to review this. We could do it at my office or if more con­ve­nient I’ve got a meet­ing in this area a week from Fri­day morning.”

3.     Com­mu­ni­cate scarcity

Let’s sup­pose that you’ve met with a prospect, had a good meet­ing and then they don’t respond to your voice mails and emails.

At that point, you could call the prospect and leave a voice mail along these lines:

Hi Jim, it’s Dan Richards. Sorry we haven’t been able to connect.

I have capac­ity for six new clients in the next quar­ter. After our last meet­ing I thought we’d work well together and you might be some­one I could help.

It sounds like you’re busy right now … I’ll touch base in about three months. Feel free to give me a call if you’d like to talk in the meantime.

This says you’re busy too. It lets the prospect know that you’re inter­ested but not des­per­ate. And whether or not the prospect calls you back, you’ve set the stage for your next con­tact in 90 days.

We have to accept that prospects will make deci­sions in their own time­frame, not ours … but that doesn’t mean we can’t do things to help the process along.  The next time you’re talk­ing to a prospect, con­sider try­ing to min­i­mize pres­sure, develop momen­tum or com­mu­ni­cate scarcity — and see if that helps move the prospect to a faster decision.

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Tags: Anxiety, Coach, Decisions, Desperation, Face To Face, Frustrations, Hopper, Inertia, Investors, Momentum, Pace, People, Prospective Client, Prospective Clients, Prospects
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A Breakthrough Strategy to Achieve Ambitious Goals

Wednesday, April 18th, 2012

Many advi­sors have ambi­tious goals for their busi­nesses. Per­haps you want to achieve dra­matic growth in assets, build pres­ence in an espe­cially attrac­tive client seg­ment or shift to a dras­ti­cally dif­fer­ent busi­ness model.

But hav­ing ambi­tious goals is one thing; trans­lat­ing them into real­ity is another. And that’s where most advi­sors stumble.

It’s worth not­ing that this prob­lem is much broader than just finan­cial advi­sors. Mak­ing tan­gi­ble progress against goals is a uni­ver­sal frus­tra­tion for busi­nesses every­where. One big dif­fi­culty is the force of iner­tia and the sheer dif­fi­culty of get­ting change under­way. Once you have a bit of momen­tum, change can develop a dynamic of its own. It’s get­ting that ini­tial momen­tum that’s the challenge.

In fact, effect­ing change in your busi­ness is not unlike try­ing to move a 500 pound rock. It take immense effort to get that rock mov­ing that first inch, but once you get a bit of move­ment the next inches become dra­mat­i­cally eas­ier. In fact your pri­or­ity often becomes guid­ing the direc­tion of that movement.

Hap­pily, two recent arti­cles pro­vide insight on how to achieve progress towards ambi­tious goals.

The power of small wins:

First is an arti­cle in the Har­vard Busi­ness Review, by Teresa Ama­bile and Stephen Kramer.

Ama­bile and Kramer asked mem­bers of project teams charged with launch­ing new prod­ucts to main­tain online diaries, record­ing events each day and their feel­ings as a result.

They col­lected 12,000 daily diaries. From their research emerged some­thing called “The progress principle.”

Here’s how they sum­ma­rized this in their article:

“Of all the things that can boost emo­tions, moti­va­tion, and per­cep­tions dur­ing a work­day, the sin­gle most impor­tant is mak­ing progress in mean­ing­ful work. And the more fre­quently peo­ple expe­ri­ence that sense of progress, the more likely they are to be cre­atively pro­duc­tive in the long run. Whether they are try­ing to solve a major sci­en­tific mys­tery or sim­ply pro­duce a high-quality prod­uct or ser­vice, every­day progress, even a small win can make all the dif­fer­ence in how they feel and perform.”

Think of the things we do to keep through recog­ni­tion and rewards to keep our­selves and our team moti­vated, and then con­sider that these are all sec­ondary to feel­ing a sense of tan­gi­ble progress. Even very small wins can lead to what Ama­bile and Kramer describe as a “pos­i­tive feed­back loop”, as the moti­va­tion from one small win can lead to the next win and the next one after that.

Here’s more from the arti­cle by Ama­bile and Kramer.

“If you facil­i­tate (your team’s) steady progress in mean­ing­ful work, make that progress salient to them, and treat them well, they will expe­ri­ence the emo­tions, moti­va­tion, and per­cep­tions nec­es­sary for great per­for­mance. Their supe­rior work will con­tribute to orga­ni­za­tional suc­cess. And here’s the beauty of it:They will love their jobs.”

There are three key take­aways from this research.

First, note the empha­sis on mean­ing­ful work. The authors of the arti­cle note that if your job is work­ing on an assem­bly line, wash­ing dishes or fil­ing paper­work, it’s dif­fi­cult to see the work as mean­ing­ful. Be sure that every­one on your team sees the big­ger pic­ture impor­tance of the work they do.

Sec­ond, the key is not the size of wins but their fre­quency. Use your daily or weekly meet­ings for reg­u­lar focus on small wins and to iden­tify one small thing that has hap­pened that rep­re­sents progress.

Finally, rec­og­nize that the progress prin­ci­ple can work in reverse; that small fail­ures can be drain­ing for you and your team. When you or your team encounter the inevitable set­backs that come with any new ini­tia­tive, iden­tify strate­gies to remind your­self and the peo­ple that you work with of the real progress that you’re making.

Here’s a link to the Har­vard Busi­ness Review arti­cle (note that you can sign up for the site at no cost to access five free arti­cles monthly):

http://​hbr​.org/​2​0​1​1​/​0​5​/​t​h​e​-​p​o​w​e​r​-​o​f​-​s​m​a​l​l​-​w​i​n​s​/​a​r/1

A path to rapid results:

A related approach to the “Progress Prin­ci­ple” is an inno­va­tion approach called “RapidR­re­sults.”

Pio­neered by man­age­ment con­sul­tant Robert Schaf­fer, the under­ly­ing con­cept to rapid results is sim­plic­ity itself. Change is hard and sig­nif­i­cant change is harder still. As a result, peo­ple and orga­ni­za­tions that set out to achieve ambi­tious goals often end up invest­ing large amounts of effort at the front end with­out see­ing results. And human nature being what it is, peo­ple who invest sig­nif­i­cant effort with­out per­cep­ti­ble progress tend to get dis­cour­aged. Even if they don’t quit entirely, their enthu­si­asm flags and the chances of suc­cess decrease further.

From this insight, Schaf­fer devel­oped the con­cept of 100 day plan. Set clear tan­gi­ble goals that you’re going to achieve in the next 100 days, and focus your efforts against those goals. Now typ­i­cally, 100 day goals don’t rep­re­sent break­throughs; but to achieve momen­tum, goals don’t have to be hugely ambi­tious as long as they show mean­ing­ful progress towards your larger objectives.

Here’s an inter­view with Robert Schaf­fer dis­cussing his approach:

http://​man​age​ment​con​sult​ingnews​.com/​i​n​t​e​r​v​i​e​w​-​r​o​b​e​r​t​-​s​c​h​a​f​f​e​r2/

The progress prin­ci­ple and rapid results in action:

Here’s an exam­ple of how the progress prin­ci­ple and rapid results think­ing might work.

Sup­pose you have a 12 month goal of devel­op­ing refer­ral rela­tion­ships with four accoun­tants in your com­mu­nity. Tra­di­tional think­ing would be to put together an ambi­tious action plan spread over the next year. With that ambi­tious action plan comes a high risk that you’ll get frus­trated by lack of response and dis­cour­aged as a result, and that the plan will fall off the rails.

With rapid results, you set mod­est goals and a con­crete action plan for the next 100 days. That 100 day plan might be:

1. Talk to your top ten clients about who their accoun­tants are, indi­cat­ing that you’d like to con­tact their accoun­tants to ensure that their invest­ment infor­ma­tion is fully com­mu­ni­cated. And ask clients to sign a form giv­ing you per­mis­sion to share their finan­cial details.

2. Con­tact those ten accoun­tants to set up a meet­ing explain­ing that your com­mon client has given you per­mis­sion to dis­cuss their finan­cial affairs.

3. Make the meet­ing all about your client. Towards the end of that meet­ing, tell the accoun­tants that you’d like to put them on the dis­tri­b­u­tion list for the writ­ten infor­ma­tion and invi­ta­tions to events that their client receives; and begin com­mu­ni­cat­ing with them as a result.

4. If there is par­tic­u­larly pos­i­tive chem­istry, you might want to tell the accoun­tant you’re meet­ing with that you’re look­ing to estab­lish infor­mal alliances with one or two accoun­tants to speak at events that you’re con­duct­ing for clients; and to con­tribute an arti­cle to the newslet­ter that you send your clients. Ask if they’d be inter­ested in sched­ul­ing a cof­fee to talk about this.

Once you’ve estab­lished that 100 day rapid results plan, you build the progress prin­ci­ple into your Mon­day meet­ings. If you met last week with a client who gave you per­mis­sion to con­tact his accoun­tant, that’s progress. If you con­tacted an accoun­tant and sched­uled a meet­ing, that’s progress. And if you had a meet­ing last week, or have one com­ing up this week, that’s progress.
None of this is meant to sug­gest that you shouldn’t have ambi­tious goals for your busi­ness. To the con­trary, stretch goals are what allow you to achieve busi­ness break­throughs. Remem­ber though set­ting goals is easy, it’s mak­ing them hap­pen where we fall down. By incor­po­rat­ing the progress prin­ci­ple and rapid results think­ing into your approach, the chances of suc­cess go way up as a result.

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Tags: Ambitious Goals, Breakthrough Strategy, Client Segment, Daily Diaries, Dramatic Growth, Financial Advisors, Harvard Business Review, Inertia, Initial Momentum, Meaningful Work, Online Diaries, Pound Rock, Sheer Difficulty, Simpl, Stephen Kramer, Tangible Progress, Teresa Amabile, Universal Frustration, Workday, Worth Noting That
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Do You Have the Guts to Set Yourself Apart?

Wednesday, January 11th, 2012

In a recent post, Seth Godin points out that cre­at­ing a com­pet­i­tive advan­tage takes guts.

A few days ago, I wrote about the impor­tance of iden­ti­fy­ing a niche mar­ket­ing to it. It makes you more attrac­tive to prospec­tive clients, and makes you refer­ral. I noted that it is counterintuitive.

It is more than that. Mar­ket­ing guru Seth Godin noted in a recent blog post that it takes guts.

Like oth­ers before him, he points out that work­ing harder is not going to make you more suc­cess­ful any­where near as much as work­ing smarter or dif­fer­ent. He also made a point I had not con­sid­ered before – that sim­ply get­ting more effi­cient at your work turns intel­lec­tual work into fac­tory work. And that engages you in a race to the bottom.

He noted that over­com­ing the iner­tia to get bet­ter at your craft, or to be dif­fer­ent in your pro­fes­sion, and to cre­ate a com­pet­i­tive advan­tage takes guts.

Why are we so insis­tent on describ­ing our­selves and our prac­tices exactly the same as all other advi­sors? Why do we describe what we do and for whom we do it the same way so many oth­ers in our indus­try do? You would think that we would under­stand that using the same words as every­one else will be utterly inef­fec­tive at giv­ing prospects a rea­son to choose us instead of any­one else. Part of the rea­son is because being cre­ative is really hard. And part of the rea­son is prob­a­bly because it is scary to do some­thing dif­fer­ent than every­one else.

It is tempt­ing to believe that every­one has cho­sen to do some­thing one way because it’s the best way. It is not – it is the aver­age way. And it takes a mea­sure of courage and self assur­ance to make a dif­fer­ent choice than your peers.

So, as you lay out plan for the com­ing year, be brave. Be dif­fer­ent. Achieve more.

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Tags: Competitive Advantage, Courage, Few Days, Guru, Guts, Inertia, Intellectual Work, Niche Marketing, Peers, Profession, Prospective Clients, Prospects, Race To The Bottom, Reason, Referral, Scary, Self Assurance, Seth Godin
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Helping Clients Close the Retirement Gap

Wednesday, November 2nd, 2011

“How do I close the gap on hit­ting my retire­ment goals?”

If you’re meet­ing with clients in their 40s and 50s, chances are you’re run into that ques­tion. Weak equity mar­kets over the past decade, low inter­est rates and a new con­sen­sus on a muted out­look for future returns means that some clients who five years ago were on track to retire at 60 or 62 can no longer be con­fi­dent about doing so.

It’s here that advi­sors can add real value, as you’re able to engage clients fac­ing a short­fall in a dis­cus­sion about the six options avail­able to them:

• Option 1: Work longer
• Option 2: Work part time after retirement
• Option 3: Increase the risk in asset mix before and dur­ing retire­ment to increase poten­tial returns
• Option 4: Change retire­ment plans; down­size houses ear­lier or cut back on spending
• Option 5: Reduce spend­ing now and invest more lead­ing up to retirement
• Option 6: Buy lot­tery tickets

Set­ting aside option 6, every solu­tion to clos­ing the gap en route to retire­ment will likely include some com­bi­na­tion of these alter­na­tives. And it’s here that finan­cial advi­sors can add real value; clar­i­fy­ing alter­na­tives and help­ing clients under­stand the trade­offs avail­able to them.

His­tor­i­cally, some advi­sors have been reluc­tant to get into con­ver­sa­tions about client bud­get­ing and spend­ing, focus­ing on the invest­ment side of the equa­tion. That may have worked in the past, but for clients look­ing to close a short­fall in retire­ment plans, you can’t ignore the impact of spend­ing, both now and in retire­ment. As part of that, an inter­ac­tive new web site gives clients the tools to quan­tify and man­age those reductions.

Quan­ti­fy­ing “the latte effect”

Most advi­sors have heard of “the latte effect;” the big impact that a small reduc­tion in non-essential spend­ing make on retire­ment portfolios.

And while many clients are vaguely aware of this, the chal­lenge is get­ting them to take action.

Iner­tia is an incred­i­bly pow­er­ful bar­rier to change. Telling peo­ple they need to alter behav­iour doesn’t work; they have to dis­cover this for them­selves. That’s why an inter­ac­tive sav­ings cal­cu­la­tor on a web­site called bills​.com (http://​www​.bills​.com/​w​a​y​s​-​t​o​-​s​a​ve/) offers an effec­tive way to show clients what hap­pens if they reduce spending.

There are three sim­ple steps. First, clients choose the return that they’ll earn on their sav­ings from 1% to 10%. Next, they select the length of time for which these sav­ings will be main­tained; any­where from 1 year to 30 years.

Finally, the site allows peo­ple to look at 20 ways they can cut back. From daily cof­fees and snacks to bot­tled water, gym mem­ber­ships, lot­tery tick­ets, enter­tain­ment and din­ing out. You pick a cat­e­gory and how much you think could be cut. Depend­ing on the expen­di­ture, the sav­ings are shown on a weekly or monthly basis. As peo­ple go through the dif­fer­ent cat­e­gories, there is a run­ning tally of how much bet­ter off they’ll be as a result.

Clients could go through this process in two dif­fer­ent ways. One is to go through each cat­e­gory look­ing for sav­ings and see where they end up. The other is to set a monthly sav­ings goal and then go through each cat­e­gory look­ing for ways to get to that goal.

Help­ing clients stick to their plan

Imag­ine that a 45 year old cou­ple chooses a 20 year time­frame and a 6% return on the amount they save, based on an all-equity port­fo­lio of qual­ity div­i­dend stocks. Hav­ing done that, they decide to elim­i­nate their two daily lattes while at work. At $4 each, that adds up to $80 a week that they put into a TFSA. By doing this alone, in 20 years they end up with an extra $160,000 in retire­ment sav­ings; at a 4% with­drawal rate, that works out to an extra $125 a week to spend in retirement.

Or let’s sup­pose they iden­tify weekly sav­ings of $200, adding up to $10,400 annu­ally. Of this amount, half goes to fund quar­terly long week­end mini-vacations in nearby cities, the other half goes into a TFSA for retirement.

After 20 years, that $100 a week into their retire­ment fund accu­mu­lates to just over $200,000. One way to trans­late this into con­crete terms is to tell clients that at a con­ser­v­a­tive 4% with­drawal rate, set­ting aside an extra $100 a week for the next 20 years results in an extra $150 a week for the dura­tion of their retire­ment, indexed for inflation.

As for the other half of their sav­ings that’s allo­cated to quar­terly mini-vacations, this is dri­ven by two pieces of behav­ioural research.

One relates to the need for short term rein­force­ment to main­tain dis­ci­pline. Quite sim­ply, most peo­ple need more than the prospect of a more com­fort­able retire­ment in 20 years time to sus­tain short term sac­ri­fice. That quar­terly mini-vacation pro­vides reg­u­lar imme­di­ate rewards en route to that long term goal.

The other research is on the pay­off from hol­i­days, some­thing I’ve writ­ten about before. There are three ways that peo­ple get a lift from vaca­tions; the antic­i­pa­tion lead­ing up to them, the enjoy­ment while on hol­i­day and the pos­i­tive mem­o­ries after­wards. What’s fas­ci­nat­ing is that as a gen­eral rule, the most pow­er­ful of these three ben­e­fits from vaca­tions is the antic­i­pa­tion in advance of get­ting away.

The con­clu­sion is very sim­ple: In addi­tion to tak­ing peri­odic longer breaks to decom­press and recharge, we’d all be bet­ter off if we sched­uled more fre­quent, shorter hol­i­days, so that we always have some­thing com­ing up to look for­ward to. That’s true for us and it’s just as true for our clients.

A last obser­va­tion on this site: Many clients who are fairly fru­gal or who don’t have to be con­cerned about their retire­ment still worry about the “live for today” mind­set of their chil­dren. The site can be a use­ful resource for your clients, but can be even more effec­tive if they can per­suade their kids to spend some time with it.

Note: The extra dol­lars at retire­ment are actu­ally greater than shown on the site, since the cost of those lattes and gym mem­ber­ships will go up with infla­tion. Off­set­ting that, the dol­lar amount the site shows clients end­ing up with down the road is in today’s dol­lars and will have lost pur­chas­ing power. In the inter­est of sim­plic­ity, I sug­gest you set this aside when hav­ing this con­ver­sa­tion with clients.

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Tags: 40s, 50s, Asset Mix, Closing The Gap, Consensus, Conversations, Financial Advisors, Future Returns, Gap, Inertia, Investment Side, Low Interest Rates, Option 1, Retirement Goals, Retirement Option, Retirement Plans, Retirement Portfolios, Shortfall, Tradeoffs, Work Part Time
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Getting Prospects to Make Faster Decisions

Wednesday, December 1st, 2010

One of the biggest frus­tra­tions for advi­sors is the amount of dither­ing that prospects do — some­times it feels like it takes for­ever for peo­ple to make a decision.

Or you’ll have a really good meet­ing with a prospect, you agree to send them some infor­ma­tion as a follow-up and then prospects won’t return your calls.

There are a num­ber of rea­sons for this. Peo­ple are busy. Often they’re gen­uinely unsure whether life with you is going to be bet­ter than where they are now. Iner­tia is a pow­er­ful force — for some investors, it’s just eas­ier to stay where they are.

And often the harder that you try to accel­er­ate the process, the more prospec­tive clients get their backs up.

As a result, you need to have three strate­gies in place

1.     Min­i­mize pressure:

The chal­lenge when talk­ing to a prospec­tive client is to com­mu­ni­cate that you’d like to work with them but that you don’t need to work with them — you need to allow the con­ver­sa­tion to evolve at a com­fort­able pace. The moment you con­vey anx­i­ety or even a trace amount of des­per­a­tion for the busi­ness, your chances go way down.

One way to do that is to have lots of prospects in the hop­per. If you have five prospects, inevitably you’ll feel pres­sure when talk­ing to one of those five.

If you have fifty five prospects, much less so.

2.     Cre­ate momentum

Recently I fea­tured an arti­cle by a US advi­sor coach out­lin­ing a four meet­ing process to con­vert prospects to clients.

Whether your process when meet­ing with prospects is two, three or four meet­ings, you need to try to close each meet­ing by set­ting up the next one, ide­ally in the next cou­ple of weeks. You need to try to build an appro­pri­ate level of momen­tum into prospect meet­ings, with­out cre­at­ing pressure

So if a prospect asks you to send infor­ma­tion, if it’s a sig­nif­i­cant prospect, I’d try to set up a time to briefly review that mate­r­ial face to face. The prob­lem is that mail­ing or email­ing infor­ma­tion after a meet­ing typ­i­cally doesn’t add to momen­tum, in fact it often reduces it.

Instead of email­ing infor­ma­tion, I ‘d say some­thing like: “I’ve found that the best way to cover this kind of mate­r­ial is in per­son. I won­der if we could set up 20 to 30 min­utes the week after next to review this. We could do it at my office or if more con­ve­nient I’ve got a meet­ing in this area a week from Fri­day morning.”

3.     Com­mu­ni­cate scarcity

Let’s sup­pose that you’ve met with a prospect, had a good meet­ing and then they don’t respond to your voice mails and emails.

At that point, you could call the prospect and leave a voice mail along these lines:

Hi Jim, it’s Dan Richards. Sorry we haven’t been able to connect.

I have capac­ity for six new clients in the next quar­ter. After our last meet­ing I thought we’d work well together and you might be some­one I could help.

It sounds like you’re busy right now … I’ll touch base in about three months. Feel free to give me a call if you’d like to talk in the meantime.

This says you’re busy too. It lets the prospect know that you’re inter­ested but not des­per­ate. And whether or not the prospect calls you back, you’ve set the stage for your next con­tact in 90 days.

We have to accept that prospects will make deci­sions in their own time­frame, not ours … but that doesn’t mean we can’t do things to help the process along.  The next time you’re talk­ing to a prospect, con­sider try­ing to min­i­mize pres­sure, develop momen­tum or com­mu­ni­cate scarcity — and see if that helps move the prospect to a faster decision.

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Tags: Anxiety, Coach, Decisions, Desperation, Face To Face, Frustrations, Hopper, Inertia, Investors, Momentum, Pace, People, Prospective Client, Prospective Clients, Prospects
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Behaviour that Costs Clients Money

Wednesday, June 2nd, 2010

Behav­iour that costs clients money

There’s grow­ing research that demon­strates that investors aren’t ratio­nal and that their irra­tional behav­ior costs them big money over time.

One of the lead­ers in this area is Duke econ­o­mist Dan Areily, author of the best­selling book Pre­dictably Irra­tional — last week we talked just before his kick­off speech at the CFA Insti­tute annual meet­ing in Boston.  Our con­ver­sa­tion can be viewed on today’s email.

Advi­sors who under­stand the nat­ural biases in indi­vid­ual behav­ior can frame ques­tions and pro­vide advice that will steer client decision-making process in a more ratio­nal — and eco­nom­i­cally bet­ter — direction.

The fol­low­ing is drawn from an arti­cle by Bob Hueb­scher, pub­lisher of online newslet­ter Advi­sor Per­spec­tives, report­ing on a talk that Ariely deliv­ered last fall. (If you want to receive Advi­sor Per­spec­tives, you can sign up at no cost at www​.advi​sor​per​spec​tives​.com.)

Set­ting up auto­matic behavior

One exam­ple is under­stand­ing the power of hav­ing iner­tia work for you by auto­mat­i­cally set­ting up desired behav­ior.

Ariely showed why organ donor par­tic­i­pa­tion rates are strik­ingly dif­fer­ent among Euro­pean coun­tries that on the sur­face look sim­i­lar — Bel­gium and the Nether­lands for example.

Those coun­tries that present an opt-out choice (e.g., “check this box if you don’t want to par­tic­i­pate in the pro­gram”) have far higher par­tic­i­pa­tion rates than those coun­tries where par­tic­i­pants have to check a box to opt-in; Canada falls into this lat­ter category.

What advi­sors can do:

Advi­sors can take advan­tage of default deci­sion mak­ing by set­ting up an auto­matic sav­ings plan, where a cer­tain amount is con­tributed from a client’s account every month unless they do some­thing to change this.

Or another exam­ple is get­ting clients to buy into auto­matic rebal­anc­ing, so the default deci­sion is the one that will serve clients well.

Pre­sent­ing a man­age­able num­ber of choices

Ariely also points to an exper­i­ment to illus­trate the impact of the num­ber of choices that clients are pre­sented with.

Shop­pers in a super­mar­ket were offered the chance to try dif­fer­ent jams at a table set up when they entered a supermarket.

In one sce­nario there were six dif­fer­ent jams on the dis­play table; in the other there were 24.

The researchers recorded the per­cent­ages of peo­ple that approached the tables, tried the jams, and pur­chased a jam. Where there were six jams on the table, 40% of peo­ple approached a table and 30% ended up pur­chas­ing a jam, so 75% of those who tried the jams bought a jam.

Where there were 24 jars of jam, 60% of peo­ple approached the table, but only 3% pur­chased a jar of jam — so only 5% of those who tried the jams purchased.

By lim­it­ing choice, you ended up with ten times more pur­chases. Over­whelm­ing shop­pers with 24 options totally negated the entic­ing effect of offer­ing a free sample.

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Tags: Automatic Behavior, Bestselling Book, Cfa Institute, Compendium, Decision Making Process, Defaul, Donor Participation, Economist, Email, European Countries, Inertia, Irrational Behavior, Kickoff, Latter Category, Natural Biases, Organ Donor, Participation Rates, Rebalancing, Target, Time One
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